Media Prima - Acceleration in Digital Contribution

We walked away feeling neutral after a meeting with MPR’s management. The Group believes its competitive advantage through wider audience catchment will pave the way to return to the black. The group is aiming to leverage on its Odyssey strategy to achieve higher contribution from digital segment to mitigate the declining revenue from traditional media platforms. Losses are expected to be narrowed through various initiatives and dividend payment seems unlikely at least in the next 1-3 years. Maintain our earnings forecast and HOLD call with TP of RM0.42, pegged to P/B of 0.6x.

We recently met up with Media Prima and walked away feeling neutral on the group’s near term outlook. Below are the key takeaways.

Main concern. We are of the view that the main reason for MPR’s dwindling share price was stemming from its fruitless efforts in diversification and heavily dependent on traditional media revenue. This has led MPR to (i) incur high investment in acquisitions and partnerships; (ii) embarked various cost rationalisation exercise; and (iii) longer gestation period for the digital strategy.

Wide audience is the key. Through Odyssey Strategy, MPR is aiming to expand its non-advertisement revenue from 20% to 40% and digital revenue from 5% to 20% by 2020. To achieve this, MPR is exploiting on its media platforms including TV, radio, print and outdoor to pave for a wider target audience, while Rev Asia will cater for the modern media.

Progress to digitalisation. Under Odyssey Strategy, MPR is aiming for digital to contribute 20% of total revenue. To achieve this, MPR believes its traditional media platforms offer an opportunity that can lift its digital target, i.e. (i) FTA segment’s Tonton can reach wider audience through YouTube platforms, (ii) traditional newspaper is able to offer online reading through websites and phone apps and (iii) radio to offer new stream of podcast. Through digitalisation, NSTP managed to grow its unique visitors to 19m and through Ripple, MPR was able to catch accurate segmentation which enabled customised solutions for advertisers to reach a variety of target audiences.

Creating more content. Having realized the importance of creative content, MPR’s in-house content production has worked with OTT players, namely Netflix and Dailymotion, to broadcast MPR’s contents. In addition, its brainchild – Ejen Ali is now broadcasted to over 45 countries and is very popular in our neighboring countries.

More cost cutting seen. We are of the view that MPR’s current cost structure is too dense for a company that is on track towards digitalisation. MPR’s overhead cost currently comprise almost 36% of total cost as compared to the Astro’s 18%, and we believe MPR is targeting to hit personnel cost below 30% of total expenses. Should this materialise, we believe MPR is able to channel the saving from cost rationalisation to create more creative contents and digitalisation efforts.

OOH segment. As part of its digitalisation efforts, MPR recently launched Big+ (OOH segment’s Big Tree) which focused on using technologies (geotagging and image recognition) on its billboards. The technology will enable consumers to swiftly respond to the advertisement using their smartphones. No capex was disclosed for this initiative, however we expect a muted contribution from this segment due to the start up cost.

Earnings guidance. While management previously guided for reduced losses in the coming quarters, this tone has changed due to (i) delay in staff layoffs; (ii) slower-

than-expected adex growth despite strong consumer sentiment. In light of this, we anticipate the losses to persist for the rest of FY19 and FY20 respectively.

Unlikely to divvy. We believe MPR is unlikely to disburse dividend in the next 1-3 years. Its cash stood at RM257m as of 3Q18, declining from RM374m a year ago. All in, we do not expect dividend yield to be the main attraction for this stock.

No change to forecast. Despite acceleration from digital revenue at the top line, we do not feel that there will be any significant changes in earnings contribution across all its various media platforms. As such, we are leaving our earnings estimates unchanged at this juncture.

Maintain HOLD, with unchanged TP of RM0.42. Despite optimism in its digital initiatives, we view that the slow pace of digital contribution will drag MPR’s return to black as its traditional media contribution is deteriorating rapidly. We will only start seeing rewards from the initiatives in 2H19. Our TP of RM0.42 is based on P/B of 0.6x (-2SD below 5-year mean).